June 2007 Newsletter
Competitor Sells For Third Time
 One of our competitors has
been sold for the third time in almost as many years. This
time venerable English wholesaler Air Menzies International
(AMI) wrote out a hefty check to Peter Whitfield. There
always are serious reasons for selling a company and there
is merit in creating greater critical mass. We feel sure the
new AMI will be a formidable foe. For our part, we remain
convinced that wholesaling is a very intimate business. We
believe that by remaining independent, CII has the skill,
dedication and flexibility to focus on you, the customer, in
providing the highest standards of service. Sure, our newly
installed “Smart Alec” web-based computer system is state of
the art. Yes, there is structure and discipline within CII.
Personal service remains our hallmark, however. Our bosses
are not based on another continent and in another time zone.
Our management, and all our personnel, are inside CII’s
three offices, tending to the day to day needs of our
business. To this day, we have resisted the temptation to
install one of those modern voice mail phone systems because
we believe that a real live, human voice is what you, the
customer, wants to hear. Our entire operation is centered
upon providing the finest in personal service. This lofty
goal has been our objective from the first day of our
operation.
"Our entire operation is centered upon providing the
finest in personal service. This lofty goal has been our
objective from the first day of our operation."
By remaining true to our ideals and goals, we believe CII
can grow organically without the need of a merger or sale of
the company. CII started on a dream by Peter and me fourteen
years ago. The impossible dream” has become a reality with
continued sales growth combined with financial stability.
We still have the same passion and love for what we do
today, as we did when our doors first opened for business.
CII is very much our baby and will remain so indefinitely.
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Asia-Europe Cargo Also Slowing Down
 I am always surprised, but perhaps should not be, how often
analysts and “consultants” are wrong when predicting air cargo
trends. The Asia-Europe cargo market is a perfect illustration
of misguided and incorrect analysis. The fallacious reading of
this market was more than just an academic exercise. Millions of
dollars have been committed to satisfy this supposedly fast
growing market, which actually has been not much more than
stagnant. A few years ago, marketing “experts” were trumpeting a
huge new market; one that would equal the Europe North Atlantic
in volume. Asia-Europe was the next big growth area for air
freight. Both legacy and new cargo airlines jumped into this
market. All-cargo carriers like Jade and Great Wall Airlines
were formed to exploit this market utilizing big 747 equipment.
Old line carriers like Lufthansa and KLM-Air France increased
the number of all-cargo flights between the two historic
continents.
The results have been disastrous. Both Jade and Great Wall are
running up huge losses. Lufthansa is switching a number of its
flights from Asia-Europe to the North Atlantic. The all-cargo
carrier, Cargolux, also is de-emphasizing flights across Siberia
for a greater number of trips ex-Europe to U.S. cities. A new
Italian allcargo carrier; Cargoitalia, has started twice weekly
service from Milan to Chicago and New York. Let’s hope the
airlines are not repeating their mistakes in Europe with a
“disproportionate” amount of flights across the Atlantic. With
so many existing and planned flights across the Atlantic,
forwarders will be paying airlines more money in fuel surcharges
than their published rates.
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Too Much Equipment Chasing Too Little Business?
Last month, I commented on the decline
of cargo business at the two busiest airports on the West Coast; LAX
& SFO. I wondered if this lessening of volume was just a hiccup or a
national or even international trend. I didn’t have long to wait.
Official statistics were published soon afterwards showing air
freight volume both domestically and internationally to be very
sluggish in the first quarter of 2007.
The decline was not confined just to air cargo. The trucking
industry, both FTL and LTL, was showing fairly heavy declines as
well. One truck forecasting company was calling the drop in truck
volume a “freight recession” with the big truckers like Yellow and
Old Dominion announcing declines of up to 10 per cent in revenues.
The other major type of surface carriers; railroads, also were
reporting drops in sales and shipments during the first quarter of
2007.
Even ocean shipping, which has been the star of the transportation
industry for the past decade with huge ex-Asia business to west
coast ports, reflected a decline of about 3 per cent during the
first quarter of 2007.
Ironically, while volume was dropping, all sectors of the transport
business were announcing record or near record number of orders for
new equipment. Boeing is having its most successful year in history
for cargo aircraft with substantial orders for freighter airplanes.
Both the cargo version of the triple seven and the venerable 747 are
keeping Boeing’s production lines humming. On the trucking side,
truckers are starting to realize they “overbought” more than 100,000
trailer tractors last year just as their business was declining. On
the ocean side, an almost record amount of 10,000-TEU container
ships will slide down the ways this year, with a subsequent
softening of rates as shipping lines frantically try to fill these
new behemoths.
What does this across the board, gloomy transportation news tell us
about the general U.S. economy? It tells us, in no uncertain terms,
that the glory days of 4.5 per cent increases in GDP is but a
memory. If we eke out a 1.5 per cent increase in GDP for the current
quarter and the remainder of the year, consider the U.S. economy
fortunate. The chickens are coming home to roost in the form of high
gas prices, a sharp drop in housing activity with sub-prime mortgage
woes leading the way and continuing outsourcing of well paying
industrial and service jobs to low cost countries. Let’s hope the
consumer ignores all this bad news and continues to spend like
there’s no tomorrow. If not, we’re not talking about a sluggish
economy—but a real recession.
"The chickens are coming home to roost
in the form of high gas prices, a sharp
drop in housing activity with subprime
mortgage woes leading the way and
continuing outsourcing of well paying
industrial and service jobs to low cost
countries."
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Alan Greenspan Big Fan Of Air Cargo
 Air freight may not get the respect
it deserves in many quarters, but at least one powerful
financial leader believes that our industry is an accurate
barometer of global economic trends. He is Alan Greenspan,
former Chairman of the Federal Reserve. As head of U.S.’ central
bank, Greenspan was one of the most influential men in
government. During his lengthy tenure at the Federal Reserve,
Greenspan was considered second only to the President in power
and influence.
"...Greenspan is convinced that air freight
tracks either an economic upturn or decline
six months before it actually happens."
During his tenure at the Bank and even today, Greenspan
telephones Fred Smith, CEO at FedEx, and other cargo leaders to
ascertain how the air freight business is performing. Greenspan
believes that air freight shipments are a clear snapshot of the
trend line for the general economy. In the short term, shipments
reflect a currently strong or weak economy. Over the longer
term, Greenspan is convinced that air freight tracks either an
economic upturn or decline six months before it actually
happens. Manufacturers adjust their production lines and
shippers either to increase or decrease their delivery
schedules.
I second Greenspan’s opinion. I always have believed that air
freight is a more accurate reflector of the nation’s and the
world’s economic health than sea commerce. Although air traffic
comprises only about 4 per cent of international transportation
volume, much of what is shipped by air is high value goods which
rise and fall with the general economy. On the other hand, a
huge percentage of what moves by sea is commodities like oil or
food products that remain fairly constant in volume whatever the
status of the global economy.
As Comedian Rodney Dangerfield used to say, “we get no respect.”
Air freight actually is an important harbinger of what’s ahead
for our economy. More attention should be paid to air freight
volume by corporate and government economists in addition to
CEOs. Who knows? Perhaps the first Nobel Prize will be given to
that economist who correlates air freight trends with the
condition to the world economy.
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Conflict In Iraq; Parallels With The Thirty Years War
 It’s a shame more American
students don’t study European history. If they did, students
would learn about the Thirty Years War. That war in the
fifteenth century dragged on for an almost unimaginable
thirty years. What was so interesting about that war was not
who won or lost, but that after about five years of
fighting, soldiers on either side completely forgot exactly
why they were on the battlefield. They just soldiered on,
killing each other, out of sheer habit and routine.
That long ago war reminded me of the conflict in Iraq. The
U.S. has been engaged in that conflict for “only” four years
but increasingly, American soldiers and marines from the
“grunts” on the ground to the highest officers in the
Pentagon, have forgotten why fighting continues and
casualties keep mounting.
I don’t think even Vice President
Cheney, perhaps the most passionate and stubborn defender of
the war, now can state with certainty exactly what the U.S.
military are doing in Iraq. All the reasons Cheney and his
fellow neo-conservatives confidently predicted in the
lead-up to the war, have been exploded. The belief that Iraq
would become a democracy and set an example for other Arab
nations also to become democratic states; that oil revenues
would result in a prosperous and free-market Iraq; that
Sunni and Shiite would lie down together like lambs and
live in peace and harmony; and that the non-Arab Kurds would
love their Arab neighbors, share their oil revenues and not
wish to become an independent nation. All these assertions
were no more than the fantasies of President Bush and his
circle of neo-cons like his vice president and Messrs. Wolfowitz, Perle and Kristol. What do they have to say after
more than four years of war, almost 3,500 casualties, $500
billion spent and an Iraq that is totally dysfunctional?
Exactly what are we doing in Iraq? I wish someone would
provide a persuasive answer.
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U.S-E.U Opens Skies Agreement Puts Heathrow Up For Grabs
 The Open Skies agreement approved by the European Council this
past March is a typically twisted, convoluted set of
bureaucratic new rules and regulations affecting airlines
serving the two largest international markets. Not many in our
industry fully understand them. One of the Council’s few easy to
understand directives, however, was throwing open London’s
Heathrow Airport to all airlines.
Currently, the airport is dominated by British Airways with only
a few American airlines allowed to fly in and out of the U.K.’s
premier airfield. A number of U.S. carriers campaigned
vigorously to open up Heathrow, but one wonders what all the
fuss and bother is about. For Heathrow, without doubt, is the
most shabby, outdated and inconvenient of all the major
“gateways” in the world. I have been traveling through Heathrow
as a passenger for the past three decades and can attest that
almost nothing has been done in that time to upgrade or update
its facilities. The airport is a disgrace to the airline
industry and to England, particularly compared to the new
airfields in Hong Kong, Tokyo and Bangkok, to name a few.
Why the airport authorities allow incompetence and sheer
hostility of many of its personnel to flourish, is a mystery.
They make your stay at the airport as unpleasant as possible
with incomprehensible directions and instructions. Make sure to
have a good meal before you arrive at the airport. Its
restaurants serve miserable food at outrageous prices.
Heathrow’s dominant airline, British Airways, has the unenviable
distinction of reaching the top spot in the “Lost Luggage
League” with an astonishing 28 per cent of its passenger luggage
lost at the airport. The old saying, “you may be sorry what you
get” could be applicable to the airlines clamoring for slots at
Heathrow.
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Virgin America Finally Wins Operating Certificate
 Sir Richard Branson, if nothing else, is persistent. After years of
effort and millions of dollars spent, Virgin America finally has won
its operating certificate from the DOT and now can fly within the
U.S. But is it a Pyrrhic victory?
The airline expects to start operating four flights a day between
SFO and JFK starting in late summer and using Airbus 320 equipment.
Sounds fine until one realizes there are about six other airlines
flying that same route every day of the week. These are among the
biggest and strongest carriers in the industry. With Virgin added to
the picture, about 10,000 seats will be available on a daily basis.
Are there that many people flying each day between San Francisco and
New York’s JFK? That doesn’t take into account the flights into
Newark Airport from SFO by Continental and other airlines serving
the NYC market. Let’s hope the Virgin investors who have sunk $53
million into the venture know what they are up against. Compounding
the problem is the fact that Virgin is operating in two of the most
expensive cities in the U.S. Virgin’s choice of the high-priced San
Francisco Bay area as its corporate headquarters was more of an ego
trip by Branson than a sound business decision.
Something will have to give. I suspect Virgin will have to announce
very low “introductory” fares to make any appreciable dent in the
market. Of course, all the other carriers instantly will match the
Virgin fares with everyone losing in the process.
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Julian
Keeling
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